Will a fifth commodity super cycle be Africa’s moment?

Since the independence era, the composition of the basket of African exports has not materially changed in value or diversity. After independence, most African countries continued exporting the commodities that had previously been extracted by former colonial powers. Over time, those commodities have expanded to include other agricultural products like cocoa, cashews, coffee, and tea. 

On the other side of the ledger, Africa is dangerously dependent on exports from outside the continent for everything, from basic foods to energy. According to Eurostat, in 2021, 68% of goods exported from the EU (Africa’s largest trade partner) to Africa were manufactured goods, but 65% of goods exported from Africa to the EU were primary goods. 

Africa’s inability to add value to forest, agricultural, and mineral products directly translates into earning less from this exchange. It drives African poverty and the continent’s inability to meet its own needs.

Left unchanged, these terms of trade guarantee an Africa unable to finance its infrastructure, invest in its enterprises, meet the social needs of its people, or adapt to the changing climate. Lacking domestic revenue or savings, the continent will look ever increasingly to external sources for investment and infrastructure. This is a structural pattern that will not change by happenstance.

These terms of trade have exposed the continent to outsized impact from external shocks. External disruptions have a disproportionately negative impact on lives and livelihoods. Far away from the Russian war of aggression in Ukraine, Africa finds itself on the frontline of the fallout in high energy and food prices, high inflation, and the immiseration of its people.

This compounds the economic scarring underway from the Covid-19 pandemic and vaccine famine, which came on the heels of further disruptions from the Trump trade wars. 

Africa is perennially in the blast zone of these external economic explosions. A successful implementation of the AfCFTA, increased intra-regional trade and regional import substitution can build a hedge against external shocks.

But the continent is also fortunate, since there is now an emerging trend in the global economy that carries the possibility of ushering in a sustained boom in the demand and price of the continent’s primary exports. Appropriately leveraged, that boom could add impetus to the continent’s structural transformation. 

The challenge of climate change and the effort to transition from a fossil fuel-driven economy presents an opportunity for African economies. But without the appropriate leadership, policies, and systems in place, it could play out like every other boom before it – massive revenue intake, rampant corruption, an unsustainable expansion of the state, and the inevitable collapse. That must be intentionally avoided. 

What is a super cycle?

According to the Visual Capitalist website, economists at the Bank of Canada have identified four distinct periods of sustained, high demand and higher than usual commodity prices over the last 120 years.

These periods, called commodity super cycles, have coincided with massive and rapid industrialisation and modernisation. Sometimes lasting for decades, they “produce strong, sustained demand for raw and manufactured materials, such as metals and plastic, that exceeds what commodity producers can supply”.

It is this author’s view that only two regions of the world have populations large enough, and a built environment underdeveloped enough, to drive a fifth super cycle – Africa and India. 

That possibility, at least in Africa, is enhanced by the transition to net zero, which is unleashing massive demand for certain minerals and their derivative metals. This demand coincides with Africa’s growing population and rapid urbanisation which, on its own, will further increase demand for the commodities that drive industrialisation. 

Because Africa’s industrialisation will be compelled to account for a changing climate, it will, by necessity, be greener and place still more pressure on the demand for these base minerals. An Africa without clear industrial policy or capacity to process these minerals and produce metals at home will simply fall into the same pattern of exporting raw materials and paying to import the finished goods at prices it is increasingly unable to meet. 

A World Bank report, Minerals for Climate Action: The Mineral Intensity of the Clean Energy Transition, finds that the production of graphite, lithium and cobalt, could increase by nearly 500% by 2050, to meet the growing demand for clean energy technologies. It estimates that over 3bn tons of minerals and metals will be needed to deploy the wind, solar and geothermal power, as well as energy storage, required to keep temperature rises below 2 degrees Celsius.

Avoiding the pitfalls

There are serious questions about whether there are enough of these minerals and how much environmental degradation will be associated with their extraction. The promise of a massive commodity demand carries the attendant risk of worsening the trade terms under which Africa currently engages the global economy.

The continent could end up supplying the minerals that enable the transition to net zero, while exclusively carrying the environmental damage associated with those supplies. And to add further insult to this injury, the continent will earn the least from the transaction.

Avoiding this fate will require a deliberate separation of Africa’s economic planning from the gaze and intrusion of Americans, Asians and Europeans. It will require us to ignore their interests when they contradict those of Africa. Africans have naively looked to these actors and their Africa plus one summits as forums for serious planning of the continent’s economic future.

I believe it is a mistake. Other countries will never negotiate against their own interests and since we enter any such negotiation from a place of weakness, Africa’s impulsion to consult them about its future is detrimental to that future. 

Africa’s economic growth will undoubtedly enlarge the global pie, but along with that growth inevitably comes reallocation of resources and economic dislocation. As I have noted in previous columns, we ought to observe China closely. For at least a decade, the West has cajoled China to open up its financial markets and China has simply refused. China only began enforcing intellectual property rights when it felt it was ready. 

Until the eve of the recent EU-Africa Summit, there was a gathering consensus in the West to cut off the continent’s access to funding for downstream investment in its fossil fuel deposits – even natural gas.

They dismissed Africa’s interest in using natural gas to transition from using wood or charcoal for cooking. They dismissed the continent’s alarm about the deforestation associated with charcoal. But they continued to expand their own natural gas infrastructure. 

Even as Norway boasts one of the highest per capita adoptions of electric vehicles, it conveniently ignores the environment degradation associated with mining rare earth metals or the fact that almost all the steel in China is processed using coal.

Without massive energy generation, Africa will never be able to process its minerals. A coming super cycle could be Africa’s path out of poverty, but also carries great risk. A clear industrial policy and a fully integrated regional market are the building blocks to reaping its benefits.